Innovation Diminishing Returns

by Jeffrey Phillips

I was leading an innovation workshop last week. In that workshop we were using a number of different tools and techniques to generate ideas. Somehow the subject of the airline industry came up, and the debate centered around whether or not there’s any innovation “left” in the US airline industry. As someone who flies frequently, I’m not sure whether to hope for more innovation, which I always believe is possible, or to dread it.

But this raises an interesting question – does any industry face a range of factors, constraints, regulation and competition such that innovation reaches a point where innovation is nearly impossible – or, where innovation reaching some point of diminishing marginal returns? Can any industry be so commoditized, so constrained by competition, so easily copied that innovation simply isn’t worth the effort? If any industry could be, perhaps it is the airline industry. Perhaps no other industry in the US is so vital to doing business, so liberating in terms of providing a means for people to travel, and so terrible in terms of profitability and market capitalization.

Why is innovation so rare in the airline industry? Other than Southwest, no airline has been consistently profitable over the last twenty years. Are there factors in the airline industry which limit both innovation and profitability? Or, have customer expectations, regulations and business models forced most of the majors into one common business model that none can effectively escape?

Compare and contrast the airline industry – clearly a services industry, with other services industries. For example, many of us who fly also stay in hotels. If we look at hotels, especially defining it as “short stays” we can say there remains a significant amount of innovation, from couch surfing to micro-hotels to chains that span room offerings from bare minimums to the Taj Mahal. Why is it that Marriott can offer a range of hotels from Fairfield to the Renaissance, from Residence Inn to Courtyard, something for virtually every traveler niche, yet United, Delta, US Air and American offer basically the same product to every flier. And no, “first class” isn’t a real differentiation anymore unless you are flying internationally. The airline industry offers one commoditized product, where prices are quickly matched, and has done little to distinguish service in the air (actually all have reduced services by removing food). Rather than innovate their offerings, they’ve participated in a race to the bottom – who can be the most cost effective and anger the customer the least seems to be the motto.

Does it have to be this way? Could Delta or United or American offer differentiated classes of service on the same plane, or offer different benefits on different flights to the same location? If we argue that because of external factors the product is undifferentiated could they differentiate around services (baggage, food, linkages to other travel services, friendly service, etc)? Could they innovate around the business models – developing different mechanisms to charge customers or offer a “fee for service” model? If regulations were lower could a start-up airline offer more “point to point” flying for executives not yet ready to purchase or lease a plane? Could an airline allow passengers to manage their own bags, since many of us are forced to do this anyway? Or better yet, could an airline create a partnership with Fedex or UPS to deliver bags, so passengers simply drop bags at their Fedex location and pick them up at their hotel?

I suspect, dear reader, that even in a highly commoditized industry, laden with union rules and regulations, with a high focus on safety and reliability, that there is plenty of room for innovation. What we passengers need are some stark differences between the airlines so we can demonstrate our preferences by voting with our feet. I don’t think there is a diminishing return on innovation in the airline industry, any more than I believe there’s a lack of need for innovation in that industry. Every industry, every market has the potential for innovation. We customers simply need to demand more innovation and accept less of what is now a barely acceptable product.

While we’re talking about airline innovation:

I’d like an airline with either far more overhead space, or absolutely none, so boarding is simple and fast, and there’s no reason to worry for the people boarding last about whether or not their baggage will “make it” on the plane.

I’d like an airline with multiple entrances and exits. Why do we have cars with four doors and planes with only one entrance and exit? If large international flights can board on multiple doors, smaller planes can as well.

I’d like an airline that guarantees the lighting and air conditioning works. In the last few weeks I’ve flown on two planes where the overhead lights didn’t work – limiting what I could do on the plane, and on one airplane where the AC didn’t work in 90 degree heat. Unacceptable, and with a few sensors an easy fix.

I’d like a plane that offers a snack machine onboard. Why can’t I simply purchase snacks on the plane the way I can in my office? I’d pay a premium for the snacks and it wouldn’t take up much room.

I’d like a plane with far more comfortable seats – I’m not even asking for more knee or leg room, just something that is more supportive or comfortable. Perhaps the airline could have three different seat types scattered throughout the plane, and when you select your seats at ticketing you could indicate firmness, lumbar support or seat depth options.

I could go on, but I think you get the point. There are hundreds of ideas that are possible in even a highly regulated, highly competitive marketplace. Would many of these be instantly copied? Perhaps, but we need to kickstart more competition around innovation to stop the spiral of ever decreasing service. If the airline industry can innovate, any industry can innovate. I refuse to believe in diminishing marginal returns where innovation is concerned.

Jeffrey Phillips is a senior leader at OVO Innovation. OVO works with large distributed organizations to build innovation teams, processes and capabilities. Jeffrey is the author of “Make us more Innovative”, and innovateonpurpose.blogspot.com.

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You must not have ever heard of Dayjet http://en.wikipedia.org/wiki/DayJethttp://money.cnn.com/video/business2/2007/09/07/b2.disruptors.dayjet.business2/
They were set to radically alter air travel until the market burst in 2008. They were building a fleet of small jets (6 passengers) and had a very innovative pricing and on-demand scheduling model. They even were going to use an entirely new category of small jets. Now, Dayjet and Eclipse (the jet manufacturer) are gone, along with hundreds of millions in capital. Other than playing around the margins (new types of seats) why would anyone try to innovate in this industry ever again?